Industry News

Not everyone’s consolidating assets

A common belief in the financial services industry is that individuals consolidate a large chunk of their assets among fewer providers as they near retirement

A common belief in the financial services industry is that individuals consolidate a large chunk of their assets among fewer providers as they near retirement. Recent research has found this belief to be mostly myth. It’s important for advisers to understand the real story to tailor their services to fit the needs of their clients.

The Hearts and Wallets 2010 Quantitative Panel, a survey of more than 4,000 U.S. households, was conducted nationally this summer. This study found that the percentage of pre-retirees (households in which the primary breadwinner is within five years of retiring from full-time employment) who move assets between providers or open an account with a new provider is not significantly greater than other age segments. Among pre-/post-retirees who did move accounts to a new provider, only one in four said they did so to simplify finances. Only one in five said it was to consolidate for better retirement planning.

These data have important implications for the financial adviser. Instead of focusing on a perceived bonanza with pre-retirees, advisers need to recognize that consolidation happens in an investor’s 40s and 50s. Firms should develop relationships with younger investors, positioning their companies as a trusted investment adviser.

Younger savers are viewed as requiring more work for less return and seen as being unprofitable clients. Yet the baby boomer golden goose will continue to lay its eggs only for a finite period. As boomers retire, and eventually die off, the emerging market segment of savers from the next generation will become more valued within the financial services industry. We have labeled this segment — mid- and late-career investors 28 to 64 who do not consider themselves pre-retirees — accumulators.

If financial advisers haven’t courted these accumulators in their younger years, how will they secure their retirement assets? As for the percentage of pre-retirees looking to consolidate assets, what is in play, and how can financial advisers capture that opportunity? Data in our survey point to some winning strategies.

First, let’s examine the strategy to build rapport with the large and rapidly growing market of accumulators to ensure a continued revenue stream. Our research shows that accumulators represent 80 million households, with $14 trillion to $15 trillion in total investible assets, or about half the U.S. total.

This market is one that is being pursued by Merrill Edge, Bank of America Merrill Lynch’s recently introduced online discount service. In media reports, the bank’s stated goal is to develop a relationship with the next generation of investors and eventually turn them into full-service clients. It’s a savvy strategy. We anticipate that more competitors will follow suit to combat the inroads made by discount brokers with younger and high-net-worth investors.

Second, let’s focus on how to win the loyalty and assets of the current pre-retirees looking to consolidate assets. The biggest opportunity to capture wealth set in motion by consolidation, pre- and post-retirement, is among high-net-worth investors. Nearly one-third of such investors have moved assets to consolidate for retirement planning, versus less than one-fourth for other wealth segments.

Our research also indicates that pre-retirees have dramatically different service criteria in a financial adviser than other age/lifestyle segments. Pre-retirees most value personalized service to support their transition to retirement. They want hand-holding, responsiveness and a dedicated team.

In making a bid for those pre-retirees’ assets, it’s important for the financial adviser to make sure that the individual is serious about retiring. In fact, four out of five individuals 53 to 64 who have not already retired do not place themselves in the category of pre-retirees; they are not contemplating retirement in the next five years. These late-career investors seek different provider attributes than a pre-retiree. Late-career and post-retirement investors most value Internet ac-count access.

Marketing to everyone in the pre-retiree age group the same way won’t yield the best results. Instead, it’s best to identify the investor’s objectives and then factor in age and wealth, instead of vice versa.

Only by overlaying behavior attributes onto age and wealth segmentation can a truly effective marketing plan be developed.

Chris Brown, founder and principal of Sway Research LLC, and Laura Varas, president of Mast Hill Consulting Inc., are partners in Hearts and Wallets, a multiyear retirement research series.